JayB

It's good to be Morgan We can hope. Hope is what I reserve for my daily bank (WAMU) not to implode in the coming week At least it's not Lehman. I'm personally hoping that Fidelity has enough cash in the bank to make sure that FDRXX doesn't go deer-balls if any of the commercial paper in the portfolio goes bad in a BSC like implosion.

It's good to be Morgan We can hope.

It doesn't. Where do you see may saying "...from which the public will profit handsomely" in that post. The only upside for the public as far as the discount window operations involving NCBs are concerned, as far as I understand, is avoiding a much more dramatic meltdown that would have repercussions far beyond Wall Street. As far as BSC is concerned, again - BSC is dead. Dead. They were as good as dead before the Fed extended the loan, which looks to me like it was constructed to allow for a less destructive unwinding. Financial equivalent of a screamer on a single piece of pro, with the rest of the country being unwittingly tethered to a mank-anchor a short distance below. The benefits associated with the BSC deal have and will accrue to parties outside of BSC.

Isn't that the core of capitalism? Reward comes with Risk? BSC made tons of cash in the past decade because of risk. This bailout is privatized rewards and socialized risk. The Bear Sterns building alone is worth $1 billion. Morgan can make a killing on this. BSC is dead and the shareholders took a 15-fold reaming, so I'm not worried about BSC's example inspiring others to follow their path. The money they've [CEO, CFO, all the managing directors, etc] got in the bank already is the shareholder's concern, IMO. When it comes to opening the Fed Funds window to NCB's, and accepting MBS securities at par for collateral though, I agree that what we're seeing is a classic risk socialization. Short of a time machine that could go back to 1998 and rewrite the rules governing retail lending, transparency and ratings standards for securitizing mortgages, etc - I am not sure what other options the Fed thought that they had available to them. Seems like they're smart enough to devise mechanisms that would transfer at least some of any upside that arose from their action to the public, while still looking like a life-ring to the institutions circling the drain - but who knows. Maybe things are too far gone at this point.

I've been worried about something like this coming to pass for quite a while - ever since the price-to-income and price-to-rent metrics detached from anything that could fit into what I thought were the standard lending models. Unfortunately for you, I think that what we're witnessing here is the early stages of a classic credit bubble bursting, rather than the internal contradictions of the capitalist society leading to the ascendance of the proletariat and whatnot. Thankfully the madness was contained to the US....

What's the African Proverb, "When elephants fight, it's the mice that suffer..." Somehow I think what the Fed saw had them concerned about something beyond whether or not the hedgies would be able to afford the spring renovations they'd planned for their spreads in the Hamptons. FWIW the text in bold constitutes the real bailout IMO, especially if they value the collateral assets at part(which I think they are): "March 16 (Bloomberg) -- The Federal Reserve, in emergency decisions aimed at containing a crisis of confidence in the U.S. financial system, cut the rate on direct loans to commercial banks and opened up borrowing at the rate to securities firms." Seems like Fed's thinking that this'd be something roughly akin to letting a privately run dam at the head of a populous valley fail in order to teach the dam-owners a lesson. ------ I'd look for some of this to materialize in Japan shortly, since there are quite a few folks who borrowed in yen to finance their leveraged MBS purchases in dollars. I suspect that people rushing to settle their yen-denominated debt before the dollar declines still further had something to to with the yen rally last week...

Good points on the situation in Tibet though.

this is the part that worries me: exactly WHO is the FREE TIBET crowd crowing for? The FREE CUBA crowd is and was crowing for the monied elite who actually lost something after the batista ouster. the rest (about 70%) WELCOMED the change, but all we heard was the ridiculous agit-prop of the representatives of the previous oppression. OMG, could the same be happening in Tibet? A stance subsequently validated by the elections Castro held in 1964 and every four years thereafter... he didn't need to; he held voice votes at rallies! ...but all we heard was the ridiculous agit-prop of the representatives of the previous present oppression.

this is the part that worries me: exactly WHO is the FREE TIBET crowd crowing for? The FREE CUBA crowd is and was crowing for the monied elite who actually lost something after the batista ouster. the rest (about 70%) WELCOMED the change, but all we heard was the ridiculous agit-prop of the representatives of the previous oppression. OMG, could the same be happening in Tibet? A stance subsequently validated by the elections Castro held in 1964 and every four years thereafter...

"JPMorgan Chase will host a conference call today, Sunday, March 16, 2008, at 8:00 p.m. (Eastern Time) to review the acquisition of Bear Stearns. Investors can call (800) 214-0745 (domestic) / (719) 457-0700 (international), with the access code 614424, or listen via live audio webcast. The live audio webcast and presentation slides will be available on http://investor.shareholder.com/jpmorganchase/presentations.cfm under Investor Relations, Investor Presentations. A replay of the conference call will be available beginning at 11:00 p.m. (Eastern Time) on March 16, 2008, through midnight, Monday, March 31, 2008 (Eastern Time), at (888) 348-4629 (domestic) or (719) 884-8882 (international) with the access code 614424. The replay also will be available on www.jpmorganchase.com." And... " JPMorgan Chase To Acquire Bear Stearns NEW YORK--(BUSINESS WIRE)--JPMorgan Chase & Co. (NYSE: JPM) announced it is acquiring The Bear Stearns Companies Inc. (NYSE: BSC). The Boards of Directors of both companies have unanimously approved the transaction. The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share. Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. Other than shareholder approval, the closing is not subject to any material conditions. The transaction is expected to have an expedited close by the end of the calendar second quarter 2008. The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given all necessary approvals. In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets. “JPMorgan Chase stands behind Bear Stearns,” said Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase. “Bear Stearns’ clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’ counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.” Dimon added, “This transaction will provide good long-term value for JPMorgan Chase shareholders. This acquisition meets our key criteria: we are taking reasonable risk, we have built in an appropriate margin for error, it strengthens our business, and we have a clear ability to execute.” “The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome for all of our constituencies based upon the current circumstances,” said Alan Schwartz, President and Chief Executive officer of Bear Stearns. “I am incredibly proud of our employees and believe they will continue to add tremendous value to the new enterprise.” The transaction is expected to be ultimately accretive to JPMorgan Chase’s annual earnings. “This transaction helps us fill out some of the gaps in our franchise with manageable overlap,” said Steve Black, co-CEO of JPMorgan Investment Bank. “We know the Bear Stearns leadership team well and look forward to working with them to bring our two companies together.” “Acquiring Bear Stearns enables us to obtain an attractive set of businesses,” said Bill Winters, co-CEO of JPMorgan Investment Bank. “After conducting due diligence, we’re comfortable with the quality of Bear Stearns’ business, and are pleased to have them as part of our firm.” “JPMorgan Chase’s management team has a strong track record of effective merger integration,” said Heidi Miller, CEO of JPMorgan Treasury & Securities Services business. “We will work closely in the coming weeks with Bear Stearns’ clients and management to execute the transaction quickly.”

Happy Scrolling... http://dealbreaker.com/community/2008/03/bear-stearns-news-rumors-facts.php Footage from a hidden camera near the water cooler at Bear Stearn's HQ... xh0qD0aA2bY

Felating? Strange take on that editorial. There's a front page spread on the situation in today's WSJ. Worth reading if you can find a copy. The loan is for a month, which I suspect is how long they figured it would take for institutions doing business with Bear Stearns to unwind their positions in a manner that won't release whatever Genie that the Fed regulators saw in the bottle when they looked over their books on Thursday. Apparently this is the first time that the Fed has lent money to a non-commercial bank like this since the Great Depression, and doing so requires the approval of five of seven Fed Governors. Bear Stearns itself is Toast IMO, this loan isn't going to save it, and I suspect that everyone involved knows that at this point. After reading the article, it sounds to me like one reason that JP Morgan was willing to step in and play the role that they have is that want to be the first vulture to pick over BS's carcass. Sounds like JPM is especially keen to get their hands on BS's prime brokerage business. Looks like the financial equivalent of keeping a patient alive just long enough to harvest the organs to me.

Some interesting material in the comments section below each Bear Stearns Blurb here: http://blogs.wsj.com/marketbeat/

Today's WSJ Editorial: "Bear Essentials March 15, 2008; Page A10 Yesterday's combined J.P. Morgan-Federal Reserve rescue of Bear Stearns is one of those judgment calls that are easier to second guess than they are to make in the heat of a financial panic. Regulators have to balance the risks to the larger financial system of letting a big investment bank fail against the discipline of seeing bad risk management punished by the marketplace. These columns prefer the discipline of the market, but then we don't know all of the facts that regulators confronted as they looked at Bear's troubles. Specifically, we don't know if letting Bear collapse might have had a domino effect on others in the debt and derivative markets. The Fed and J.P. Morgan are acting in concert to give Bear short-term access to the Fed's discount lending window that Bear couldn't access on its own. A big plunger in the debt markets but not a standard commercial bank, Bear's private sources of funds had dried up. The overriding public interest at the current moment is to maintain a functioning financial system, and regulators clearly felt this was at risk from a Bear failure. Just once we'd like to see what would happen if a big bank did fail, but the current general market panic arguably isn't the best time to have that experiment. Presumably Bear will now be shopped to private buyers. On the other hand, the financial system also can't function properly if every institution believes it is "too big to fail." That's an invitation for everyone to behave the way Bear Stearns did in the mortgage securities market. This means that if taxpayer funds are going to be used to rescue Bear, then Bear's private actors need to accept their own form of discipline. This includes Bear's equity owners, who deserve to endure major losses, if not lose their entire stake, in any sale. The discipline should also apply to Bear managers who got the bank into this mess. They should be fired, without bonuses and golden parachutes to the extent that is contractually possible. If bankers believe they can make bad investments and still emerge with enough cash to buy another beach house, the financial system will never have enough discipline. Looking ahead, regulators need to anticipate these liquidity bank runs, not merely react to them. The larger danger is that even this temporary Bear rescue could set a precedent that the Fed will find hard to resist. Wall Street is already demanding that the Fed do more in this crisis than its traditional duty as a lender of last resort, and start buying up mortgage-backed securities and other troubled paper as a way to entice more buyers into frozen credit markets. This means the banks would be able to dump their worst paper on the Fed, which ultimately means the taxpayer. We'll have more to say about that idea at a later date, but we trust the Fed understands the risks to its credibility that such a decision would pose. Does the Federal Reserve want to become a buyer of first resort?"

They can all implode or head to the petrostates with hat-in-hand in an effort to recapitalize for all I care. More an underlying solvency issue than a liquidity issue at this point IMO.

Anyone check the average weight and horsepower of, say, an '84 Civic vs the 2008 model? There's a trade off between the variables, and the American consumer hasn't chosen fuel efficiency since the end of the last gas crisis. If fuel efficient economobiles sold well - then the auto companies would have been more than happy to make as many as the American consumer cared to by. Your countrymen did the math and made their choices. If anything's to blame, its them.

Actually, that trend has abated somewhat, partly because of the week dollar, and partly because the goods and services provided by some of these other countries, particularly tech/customer support from India, sucks ass. 'Efficiency' is only one of many success criteria for delivering goods and services. You can 'efficiently' manufacture a turd. You can also 'efficiently' support the manufacture of products in countries that have weak labor and environmental laws, and thus help destroy both human rights and the planet. Increasingly, the American public now demands higher levels of quality, service, environmental stewardship, and human rights than these places can provide. The classic example is buying a cheap shit Chinese power tool. Once you've returned it a couple of times after it's on/off switch fails in the ON position, you'll buy the more expensive, higher quality tool...and never buy that Chinese brand again. So the less economic freedom people have, the poorer they'll be, the worse their environment will be, and the more likely they'll be to live under despotic regimes?

Since when did shipping tens of thousands of American jobs- ranging from manufacturing to IT support to what have you- to other countries because we don't want to pay our own people what they are worth to do it- become synonymous with "Trade"? If it is, then how are we reciprocating this "trade"? A trade implies some sort of exchange. If the exchange is simply that we're "putting their people to work", then see my previous post. I am not anti-trade. I am, however, not supportive of policies being implemented by American companies which reduce opportunities and choices for American citizens. Are the opportunities and choices available to American citizens less extensive on the whole than they were in, say, the 1950s, when competition was considerably less extensive? Trade = buying something from someone else for less than it costs you to produce it yourself. Every single one of us does this every single day. If you are a programmer, you exchange your ability to write code for money, which you use to pay for gasoline instead of sinking a well and establishing a refinery in your backyard, to buy bread instead of attempting to grow wheat in your backyard, etc. When rational people make these exchanges, or trades, they look for the best deal. Sometimes the best deal involves exchanging with someone who lives in another country, which is how the lesbians get their Subaru station wagons that they festoon with their Free Tibet stickers. What value do they get by being able to buy something produced overseas in competitive marketplace? In this case, they save whatever premium they'd have to spend purchasing a vehicle of equivalent quality in a marketplace fettered by protectionism. They can add this sum to their life savings, spend the money employing someone to remodel their home, buy more groceries - they have more money to use for whatever purpose they see fit. They are materially better off. Ditto for employers, who have more capital to spend on research and development, design, etc here in the US. Assuming for a moment that your exchange transactions were limited to people who produce goods or services in the US, and none of the goods were produced by a monopoly producer - you'd have to choose between more than one company. Unless they were colluding with one another, they'd be competing to offer you the best deal. They'd be exerting pressure on one another to improve productivity, drive down labor costs, etc. As soon as you chose one over the other, your choice would be "taking business away from" one or more of the enterprises just as surely as if you'd purchased the said item from someone making the same thing overseas. The aggregate choices of consumers would still favor the lowest cost producer, and that would invariably be the producer that made the most effective use of the technology and efficiencies at their disposal - all of which would simply be a different means to the same end. The jobs that you are attempting to preserve would be eliminated by technology just as surely as they are eliminated by purchasing them from firms in other countries that can produce the good or service more efficiently than any domestic employer. This would all be perfectly clear if anyone were in a situation where they had to produce everything for their own consumption, like on a plot of land in an incredibly remote area. Anything that enabled you to, say, double the number of potatoes you could harvest, or the fish you could catch, while reducing the total amount of effort you expended would be seen as an absolute good. Any person that came along that was willing to take something that required one hour of effort for you to make in exchange for something that wanted or needed and either couldn't make, or something that would take you thirty hours of effort to produce would seem like a godsend - and the effect on your quality of life would be obvious. Anyone that did anything that made it harder for you to increase your productivity, or make such trades would be imposing an obvious hardship on you. The relationship that we have with trade and productivity is exactly the same today.

It's not simply that it's bothersome that stuff is made in another country, it's that it's being made in another country solely so that the manufacturer doesn't have to spend more paying living wages to domestic workers, because it's cheaper to pay people poverty wages in poor countries to do it. The idea that this somehow supports the economy in poor countries is nebulous- yes it provides jobs where there once were none or few, but is it really helping a country much having foreign influences control one's economy? Would we think it was helpful to our overall longterm welfare in the US if we all worked for foreign companies, knowing that the company's profits are being invested elsewhere? To me what this appears to do is to both deprive our own economy of jobs (and of course you can argue that "no one here wants to do many of these jobs") while simultaneously setting up an exploitative serfdom of sorts in other countries, under the guise of "helping them", which is pure hyperbole. I think it's also questionable whether outsourcing all our jobs really keeps our goods that much cheaper. Why is it in the company's interest to save the consumer money when they can pocket the profits themselves? This society has inbred immediate gratification to the point that consumers will pay whatever they have to in order to have something they want, and the vendor knows this. I think that the statistical record in Japan, Korea, Singapore, Hong-Kong, Taiwan, and now China is quite clear. The effect that economic liberization, the investment foreign capital, trade, and the like have on every statistical measure of well-being is unambigous. The population in China alone that's been lifted out of desperate poverty in the past thirty years easily exceeds the population of the US. There is really nothing nebulous about the benefits at all. I'd give that honor to the benefits of economic protectionism. You simply can't make concern for poor people living in other countries the foundation that your critique of trade rests on. Keeping them mired in poverty by preventing them from using the few comparative advantages that they have for the sole purpose of enriching people who are already far better off doesn't seem like much of a moral platform to base anti-trade positions on either.

I don't think they should! In fact, if you have a problem with it, I would recommend you work on (re)organizing private sector workers for greater job security, better wages, and benefits. It'd be rather more productive than beating up on unionized workers and crying like a child whose ice cream cone went plop and now wants someone elses. How has that worked out for, oh, say, the United Auto Workers-- or, hmmm, I don't know; the textile industry? Better wipe my ice cream off of your shoe, junior--and shine mine while you're down there. A trip through any virtually any small town in the Northeast will drive home the same point. The number of vacant and decaying mills and factories lining the shores of virtually every river in the region is staggering. Combine high fixed costs with low productivity and the outcome will be the same every time. We've certainly passed through the looking-glass now. What exactly is the point here? Unions are to blame for capital's neverending quest find the cheapest possible labor for any given task and externalize as many social and environmental costs as possible? Workers are to blame for not wanting to return to 19th century working conditions and social arrangements found in Chinese sweatshops? Once again, I'm puzzled at your confusion as to why people aren't willing to commit social suicide for the free-market jihad or kamikaze themselves under the banner of stockholder well-being. What might American and European societies look like now if worker's combinations, unions, and other collective bargaining institutions had been absent the historical scene? Realizing of course that economic history isn't nearly so popular at Beacon Hill cocktail parties as Cato papers. Never been to a cocktail party on Beacon Hill, but the notion that Cato (Institute) papers would be popular at them is quite amusing. I don't even think that most of the denizens of Beacon Hill would take all that kindly to someone quoting Cato the Elder in their presence. Might make them rather uncomfortable. Ditto for "Cato's Letters" by Trenchard et al.

I don't think they should! In fact, if you have a problem with it, I would recommend you work on (re)organizing private sector workers for greater job security, better wages, and benefits. It'd be rather more productive than beating up on unionized workers and crying like a child whose ice cream cone went plop and now wants someone elses. How has that worked out for, oh, say, the United Auto Workers-- or, hmmm, I don't know; the textile industry? Better wipe my ice cream off of your shoe, junior--and shine mine while you're down there. A trip through any virtually any small town in the Northeast will drive home the same point. The number of vacant and decaying mills and factories lining the shores of virtually every river in the region is staggering. Combine high fixed costs with low productivity and the outcome will be the same every time. We've certainly passed through the looking-glass now. What exactly is the point here? Unions are to blame for capital's neverending quest find the cheapest possible labor for any given task and externalize as many social and environmental costs as possible? Workers are to blame for not wanting to return to 19th century working conditions and social arrangements found in Chinese sweatshops? Once again, I'm puzzled at your confusion as to why people aren't willing to commit social suicide for the free-market jihad or kamikaze themselves under the banner of stockholder well-being. What might American and European societies look like now if worker's combinations, unions, and other collective bargaining institutions had been absent the historical scene? Realizing of course that economic history isn't nearly so popular at Beacon Hill cocktail parties as Cato papers. They'd probably look quite a bit like the various Eastern Bloc societies that imploded, or the destinations that the Attlee and Mitterand experiments were heading towards before they pulled back from the brink. There are unions out there - one at a paper mill in Maine that I am aware of, and there are doubtless others - that got the message and learned that the only way for them to sustain their wages and preserve their jobs was to increase productivity, cost containment, innovation, etc. If unions were sane, they'd be actively encouraging all of the above. Lacking any of these efforts, they relegate themselves to competing primarily on the basis of labor costs, which is a battle that they'll lose continuously until wages in trading partners increase to the point where the costs associated with transport, etc negate any comparative advantage that they have on the labor front. The funny thing is that for a supposed friend of the downtrodden and wretched, you seem to begrudge these very (non-American) people the one opportunity they have to imnprove their standard of living, using the one of the few comparative advantages that they have at their disposal. The fact that manufacturers preferentially allocate production to those places where the labor costs are lowest does vastly more to alleviate global poverty than any aid program ever conceived ever could, and with considerably more speed and efficiency. Corporations seeking out the lowest labor costs transfers resources to the very areas where they're needed most, the kind of places where people sell their daughters into prostitution, or cripple their children so that they'll be able to beg more effectively. Working long hours in a factory sucks. Working long hours hunched over a rice patty and fending off starvation sucks even more. Attempting to lock capital and all of the competitive advantages in countries that are already wealthy when this means keeping a substantially larger number of people mired in desperate poverty is positively inhuman.

I kind of like the idea that people who are quite a bit poorer, and have far fewer employment options available to them have the opportunities to improve their lot in life that these manufacturing arrangements provide them. The outdoor companies are more profitable and are able to expand their employment in high value-added sectors like design, and dirt poor workers see their standard of living increased. Sounds like a great arrangement to me.

$3.16 in Boston, $3.35 or so in CT last weekend. It'd be interesting to look at how state fuel-tax variations affect gas-station distribution near state borders.

Fleetwide efficiency looks to be pretty similar in the US and Canada, despite the higher prices. Makes me think the incentive-threshold necessary to make everyone lust after a LeCar is higher than whatever the current price is in Canada.

Clearly whatever the government is offering in terms of compensation isn't sufficient to overcome the negative intangibles. Unlock the pay scale and the problem would dissappear. How much are Vegas doormen costing the taxpayer? How about the many millions that each of the Back Street Boys cleared? What private sector employers choose to pay their employees has zero affect on the public sector's ability to provide public goods and services efficiently with the tax revenue that they collect for this purpose. Lance Bass gets twenty-million so no one should worry about how efficiently the Seattle School District spends uses tax revenues to educate its students?